No way to create tax policy

THE RECESSION has forced more than 40 states to raise taxes to deal with revenue shortfall. Pennsylvania has the same problem, but that hasn't stopped Senate Republicans from proposing a $100 million tax break for a small group of major corporations. It's a very bad idea and raises fundamental questions about how tax policy is developed in Pennsylvania.

Right now, businesses in Pennsylvania are taxed based on a combination of payroll, property, and sales in the state. Under legislation being considered, the tax burden would instead be based on sales inside of Pennsylvania. Big companies based in the state that do business elsewhere would see a major windfall. Small and medium-sized businesses would mostly see a tax increase under this proposal, known as the single sales factor.

How did such a bad idea wind up the table?

It's a product of the yearly ritual of budget negotiations. Gov. Rendell wants to delay the planned phase-out of the capital stock and franchise tax and switching to single sales factor is the price that some legislators want in return. This kind of inside baseball might be good for special interests, but it's an insane way to come up with policy.

To find a better way, we need only to look in the recent past. In 2004, Rendell appointed a commission to reform business taxes. This group came up with a number of thoughtful proposals to broaden the tax base and make the current system more equitable. The commission also provided an opportunity for meaningful input from the public and allowed for a rational discussion of the best ideas.

The current debate is not based on finding the best possible policy options. Instead, it's a highly politicized process that leads to a scattershot of taxes. With such a chaotic and transactional approach to policy, is it any wonder that the budget is such a mess?